With an aim to improve returns for policyholders, the Insurance Regulatory and Development Authority of India (IrdaI) is considering to restrict the expenses that an insurance company can charge on premiums. It will bring down commission paid to distributors. Main reason that impacts policyholder’s returns is hefty commissions paid to distributors.
The IrdaI has also proposed scrapping of upfront commissions that some insurers pay to intermediaries or distributors such as banks.
The move could help to curtail mis-selling of insurance policies. It will bring transparency and discourage forced selling of insurance products.
IrdaI has proposed a policy for the allocation of expenses for various segments. IrdaI said that no insurer should spend more than an aggregate 10% of all first year premiums and 4% of all renewal premiums on policies granting deferred annuities for more than one premium; 5% of premiums received during the year on single premium annuity products and 1/20th of 1% of the average of the total sums assured by policies excluding single premium policies.
The proposed rules may lead to some short term pain but will have a beneficial effect in the long run. In the short term it will put pressure on insurers to cut costs by innovation, digitization, reducing customer acquisition costs and reducing turnaround time. But in the long run it will be beneficial for both policyholders and shareholders.
vinay mohanty
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